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The Commission's State aid policy and the current financial crisis

GCLC lunch talk - 20 February 2009

Jacques DerennePartner

Lovells LLP

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Selected issues

• Procedure• Commission's communication• Cases

– legal basis (Article 87 (3) b) EC)– selective comments on the Fortis case

• 'Real economy' - Review phase

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Procedure

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Procedure v Substance

• Substance– October communication (general rules)– December communication (recapitalisation)– December Temporary Framework (real economy)– Handbook on Community State aid rules for SMEs– + 50 cases since June 2008

• 2 'Phase II'• 10 on going cases (excl. cases 'under discussion')• 8 real economy cases

• Procedure– § 53 October communication– Commissioner Kroes empowered by College– 24h/WE decisions– ECB (confirmation of urgency)– Language– Economic Crisis Team (real economy)– New simplified procedure?

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Procedure – And Article 88 (3) EC?

• No specific initiative on notification obligation• No public reminder

– Article 10 EC

• No sanction - No national court (except Fortis)• Is the Commission in the driver's seat?

– car industry– EC initiative v MS initiatives (see Article 100 EC-

Community financial assistance)

• For a systematic and close involvement of the Commission

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Commission's communication

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Commission's visibility

• Unfortunate communication– 29 September 12:00 am (Spokesman)

• "Justice must not only be done but should manifestly and undoubtedly be seen to be done" (ex parte McCarthy [1924] KB 256,259)

– Mrs Kroes v MS and Ministers of Finance• reaction v proactivity

– work of State aid teams at Commission (Legal Service, DG COMP)

• Pedagogical efforts– competition v protectionism (Mrs Kroes, 17.2 + 19.2)

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Cases

• legal basis • some selective comments on the Fortis case

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Legal basis – Article 87(3) b) EC

• (b) aid (...) to remedy a serious disturbance in the economy of a Member State– Precedents

• 1974 crisis

• 1987 Greek economy (OJ (1987) L 76/18)• 1991 Greek privatisation programme (XXI Competition Report, 1991, § 251)

– Rejected• Crédit Lyonnais (OJ (1995) L 308/92), GAN (OJ (1997) L 78/1)

• Northern Rock (NN70/07), WestLB (NN25/08), Sachsen LB (C9/08)

– Case law• region not sufficient

– Cases T-132/92 & T-143/96, Freistaat Sachsen v Commission, point 167– Case C-301/96, Germany v Commission, points 105-108

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Relevant test

Art. 87(3) b) EC• well-targeted (remedying

serious disturbance)

• proportionate (not going beyond what is required)

• designed in such a way as to minimize negative spill-over effects

(§15 October communication)

Art. 87(3) c) EC (R&R)• long-term viability

• minimum necessary

• avoiding excessive distortions (compensatory measures)

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Comp. Article 87(3) c) EC

• (c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest

• R & R Guidelines• Decisional practice in financial crisis cases

– serious disturbance– equivalent conditions? Convergence?

• in Fortis – NN42/08- , the Commission renders the criteria equivalent: see section 6.3

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Fortis caseCommercial Court/Court of Appeal

• President Brussels Commercial Court – 18.11.08– no State aid debate– what about public policy plea (proprio motu)?

• Brussels Court of Appeal – 12.12.08– plea on 88(3)EC

• 'BNP Paribas Agreement': no suspension since not executed yet

• 'Benelux plan': no suspension since already executed• violation of 88(3) 'does not necessarily lead to the annulment

of the disputed conventions' (only annulment of the acts implementing the State aid measures)

– refusal to re-open the oral hearing

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Fortis caseCommission Decision (3 Dec. 2008, NN 42/2008; NN46/2008; NN53/A/2008)

(NB: guarantee case 19.11.08, N 574/2008)

• aid to Fortis Banque (B measures)– acquisition by SFPI of 49,9% of Fortis Banque (§35)

• €1,5-€2 (ING-BNP Paribas) v €5.2 (State)

– liquidity assistance by BNB (§46) • €51bn in a few days; 15% GDP; 50% tax revenue of 2007!

– acquisition of 50% of Fortis Banque (§62-63)– sale of 75% of Fortis Banque to BNP Paribas (§65-67)

• buy Fortis in cash and BNP buys Fortis from the State in shares

• no aid to BNP Paribas– privatisation of Fortis Banque to BNP Paribas (§58-61)– open and unconditional tender? (§58)

• compatible: Article 87(3) b) EC

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Fortis caseCommission (3 Dec. 2008) - issues

• § 65: privatisation linked to nationalisation• §§ 80-81: LT viability depends on BNP Paribas• § 90: nationalisation should be short in order to

minimize the aid• § 95: sale to BNP Paribas is a compensatory

measure

if no BNP Paribas, is the aid still compatible?

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To be cont'd...

- 'Real economy'- Review phase...

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Thank you for your attention!

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